Nawrocki v. Savvon

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
1 This Memorandum Decision constitutes the court’s findings
of fact and conclusions of law pursuant to Rule 7052(a).
2 Unless otherwise indicated, all chapter, section and rule
references are to the Bankruptcy Code, 11 U.S.C. §§ 101-1532, and
to the Federal Rules of Bankruptcy Procedure, Rules 1001-9037.
-1-
UNITED STATES BANKRUPTCY COURT
NORTHERN DISTRICT OF CALIFORNIA
In re 	) Bankruptcy Case
) No. 08-32429DM
IRENA SAVVON, 	)
)
Debtor. 	) Chapter 7
___________________________________)
J. MATT NAWROCKI, 	) Adversary Proceeding
) No. 09-3044DM
Plaintiff, 	)
)
v. 	)
)
IRENA SAVVON, 	)
)
Defendant. 	)
___________________________________)
MEMORANDUM DECISION RE NONDISCHARGEABILITY
I. FACTUAL AND PROCEDURAL BACKGROUND 1
Plaintiff, J. Matt Nawrocki (“Nawrocki”), filed a complaint
against debtor Irena Savvon d/b/a Key Mortgage Group and Savvon
Realty (“Savvon”) on March 18, 2009, seeking to except from
discharge under sections 523(a)(2)(A), 2 523(a)(2)(B), 523(a)(4),
Signed and Filed: July 17, 2009
________________________________________
DENNIS MONTALI
U.S. Bankruptcy Judge
________________________________________
Entered on Docket
July 17, 2009
GLORIA L. FRANKLIN, CLERK
U.S BANKRUPTCY COURT
NORTHERN DISTRICT OF CALIFORNIA
Case: 09-03044 Doc# 17 Filed: 07/17/09 Entered: 07/17/09 16:17:24 Page 1 of 8

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
3 At the prove up hearing, Nawrocki withdrew his 523(a)(6)
claim, and therefore the court makes no determination on it.
-2-
and 523(a)(6) 3 a debt claimed by Nawrocki. 	After proper service
of the summons and complaint, Savvon failed to appear. 	A clerk’s
entry of default was granted on May 20, 2009, and the court held a
prove up hearing on the default judgment on June 15, 2009.
Exhibits were entered into evidence and testimony was offered by
Nawrocki. 	Savvon received notice of the hearing but did not
appear. 	On June 19, 2009, Nawrocki submitted further evidence and
legal argument, and the court took the matter under submission.
As explained below, the court concludes that Nawrocki’s claim is
nondischargeable under sections 523(a)(2)(A) and 523(a)(4) and he
is entitled to a judgment.
Nawrocki’s complaint and evidence showed the following. 	In
or around November, 2007, in Montera, California, Savvon, along
with her son, Konstantin Savvon (“Konstantin”), approached
Nawrocki about an investment opportunity which was to make a
short-term secured real property loan for a construction project
in Houston, Texas. 	The property consisted of four parcels of land
owned by Dallas-Robito, LLC, a Texas limited liability company
(“LLC”). 	Savvon, along with others, previously owned the property
prior to vesting it in the LLC. 	Savvon, a licenced real estate
broker in California, agreed to and did act as Nawrocki’s mortgage
broker in arranging and negotiating the loan. 	Nawrocki’s loan,
which was needed as interim financing until alternate financing
could be obtained, was to be secured by a deed of trust junior to
a first deed of trust held on the parcels by a party named
Acquilina. 	The loan was also to be cross-collateralized by
Case: 09-03044 Doc# 17 Filed: 07/17/09 Entered: 07/17/09 16:17:24 Page 2 of 8

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
-3-
California real property jointly owned by Savvon and Konstantin,
as well as guaranteed by Konstantin. 	In effort to attain
Nawrocki’s loan, Savvon presented Nawrocki with a written
appraisal, private placement memorandum, and a title report, all
indicating that his loan would be secure. 	Savvon also made oral
representations to Nawrocki regarding the safety of the loan, that
there were no title issues, that she was actively pursuing
alternate financing, and that Konstantin was credit worthy and had
sufficient assets to be a guarantor. 	Based on Savvon’s
representations, Nawrocki made the loan to the LLC on January 24,
2008, for $360,000.00.
In or around September 2008, Nawrocki discovered the
investment was a sham through conversations with Acquilina’s
counsel, Paul Duplechain (“Duplechain”). 	Alternate financing was
never pursued, the LLC was newly formed with no credit or credit
worthiness, Konstantin’s guarantee was only secured by his
interest in the California property, and, most importantly, at the
time Savvon arranged and negotiated Nawrocki’s loan in late 2007,
Acquilina’s note was already in default with foreclosure pending.
To prove Savvon knew of the existing default and foreclosure at
that time, Nawrocki submitted two emails dated December 10, 2007,
between Savvon and Duplechain clearly showing that Savvon was
aware of, and apparently attempting to fend off, Acquilina’s
foreclosure. 	Savvon never disclosed any of this material
information to Nawrocki prior to his making the loan. 	Further,
foreclosure notices are not recorded in Texas, and therefore such
information is not revealed in a title report.
After learning the truth of the matter, Nawrocki was forced
Case: 09-03044 Doc# 17 Filed: 07/17/09 Entered: 07/17/09 16:17:24 Page 3 of 8

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
-4-
to make forbearance payments to Acquilina in order to stop
Acquilina from closing out Nawrocki’s interest in the property.
Upon confronting Savvon about the situation in September-October
2008, she stated that Nawrocki’s forbearance payments seemed
excessive considering the several forbearance payments she made to
Acquilina in 2007 were for much less. 	Nawrocki testified that had
he known about the default on Acquilina’s note and pending
foreclosure, he would never have made the loan.
II. DISCUSSION
To except a debt from discharge under section 523(a)(2)(A),
Nawrocki must show: Savvon made oral representations that at the
time she knew to be false; she made those representations with the
intent and purpose to deceive Nawrocki; that he justifiably relied
on her representations; and that he sustained losses as a
proximate result of Savvon’s representations. 	Citibank (South
Dakota), N.A. v. Eashai (In re Eashai), 87 F.3d 1082, 1086 (9th
Cir. 1996); Field v. Mans, 516 U.S. 59, 73-76 (1995). 	A debtor’s
failure to disclose material facts constitutes a fraudulent
misrepresentation under section 523(a)(2)(A) if the debtor was
under a duty to disclose and the debtor’s omission was motivated
by an intent to deceive. 	Harmon v. Kobrin (In re Harmon), 250
F.3d 1240, 1246 n. 4 (9th Cir. 2001).
When Savvon represented to Nawrocki in late 2007 and early
January 2008 that his loan would be safe and there were no title
issues, she knew those statements to be false via the December 10,
2007 emails. 	She also knew of and failed to disclose the material
fact that Acquilina’s note was already in default with foreclosure
pending. 	Her actual knowledge of her false statements or
Case: 09-03044 Doc# 17 Filed: 07/17/09 Entered: 07/17/09 16:17:24 Page 4 of 8

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
-5-
omissions proves her intent to deceive. 	Advanta Nat’l Bank v.
Kong (In re Kong), 239 B.R. 815, 826 (9th Cir. BAP 1999).
Nawrocki justifiably relied on her representations and omissions,
especially in light of the title report, he consequently made the
loan, and sustained losses as a proximate result. 	Therefore,
Nawrocki’s claim is nondischargeable under section 523(a)(2)(A).
To except a debt from discharge under section 523(a)(4),
Nawrocki must show: Savvon was acting in a fiduciary capacity, and
while acting in that capacity she engaged in fraud or defalcation.
Lovell v. Stanifer (In re Stanifer), 236 B.R. 709, 713 (9th Cir.
BAP 1999). 	Whether a relationship is fiduciary in nature under
section 523(a)(4) is a question of federal law and is construed to
apply only to express trust relationships. 	Id., 236 B.R. at 713.
Fraud within the meaning of section 523(a)(4) means actual fraud
(Roussos v. Michaelides (In re Roussos), 251 B.R. 86, 91 (9th Cir.
BAP 2000)), which is identical to actual fraud under section
523(a)(2)(A). 	Dakota Steel, Inc. v. Dakota (In re Dakota), 284
B.R. 711, 723 (Bankr. N.D. Cal. 2002). 	State law determines when
an express trust exists (Ragsdale v. Haller, 780 F.2d at 794, 796
(9th Cir. 1986)), and includes relationships imposed under statute
or common law. 	Stanifer, 236 B.R. at 714.
Under California law, a mortgage broker owes a fiduciary duty
of the highest good faith toward her principal as well as a duty
of full disclosure of all material facts concerning the
transaction that might affect the principal’s decision. 	Barry v.
Raskov, 232 Cal. App. 3d 447, 455 (1991). 	“The broker owes this
duty to the lender-investor as well as to the borrower.” 	Montoya
v. McLeod, 176 Cal. App. 3d 57, 62-63 (1985). 	A mortgage broker
Case: 09-03044 Doc# 17 Filed: 07/17/09 Entered: 07/17/09 16:17:24 Page 5 of 8

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
-6-
who is also a real estate agent is charged with the duty of full
disclosure to his or her principals. 	Id. at 64. 	The principals
of a mortgage broker are the borrower and lender. 	Wyatt v. Union
Mortgage Co., 24 Cal.3d 773, 782 (1979). 	Therefore, California
treats mortgage brokers as fiduciaries and trustees of an express
trust.
Here, Savvon acted as a mortgage broker and agent by
arranging and negotiating the loan for her principal, lender-
investor Nawrocki. 	Although Nawrocki did not cite, and the court
could not locate, a federal case in which the fiduciary nature of
a mortgage broker applied under section 523(a)(4), because
established California law holds that mortgage brokers have a
fiduciary relationship with their lenders and creates an express
trust, the court sees no reason why such a relationship would not
satisfy section 523(a)(4). 	Consequently, Savvon was a fiduciary
for purposes of section 523(a)(4). 	Further, as established above
in Nawrocki’s section 523(a)(2)(A) claim, her false
representations and failure to disclose the material information
of the default and pending foreclosure, which Nawrocki said had he
known about he would never have made the loan, establishes fraud
for purposes of section 523(a)(4). 	Accordingly, Nawrocki’s claim
is nondischargeable under section 523(a)(4).
Nawrocki initially pled the following damages: a loss of
approximately $450,000.00 to include loss of principal, interest,
and other incidental and consequential damages, such as advances
to Acquilina and other related legal and administrative costs.
His amended summary of damages as of June 15, 2009, prayed for an
Case: 09-03044 Doc# 17 Filed: 07/17/09 Entered: 07/17/09 16:17:24 Page 6 of 8

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
4 Nawrocki’s figure contains a minor mathematical error and
should have been calculated at $545,421.56.
-7-
amount of $545,421.76. 4 	The travel fees to Texas in the amount of
$1,000.00 are disallowed. 	Therefore, Nawrocki is entitled to the
following judgment:
Principal: 	$360,000.00
Pre-Judgment Interest To 7/17/09: 	$ 80,340.00
Forbearance Payments: 	$ 81,250.00
Foreclosure Costs-TX: 	$ 20,424.96
Foreclosure Costs-CA: 	$ 	1,776.60
Attorneys Fees-CA: 	$ 	6,240.00
Costs: 	$ 	150.00
____________
TOTAL JUDGMENT: 	$550,181.56
III. CONCLUSION
Based on the foregoing reasons, Nawrocki’s claim against
Savvon shall be nondischargeable under sections 523(a)(2)(A) and
523(a)(4), and he is entitled to a judgment in the amount of
$550,181.56. 	Plaintiff’s counsel is to draft and upload a
judgment in this amount. 	Counsel must comply with the provisions
of Rule 9021-1(c).
**END OF MEMORANDUM DECISION**
Case: 09-03044 Doc# 17 Filed: 07/17/09 Entered: 07/17/09 16:17:24 Page 7 of 8

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
-8-
COURT SERVICE LIST
J. Matt Nawrocki
3007 Hillside Dr.
Burlingame, CA 94010
Mark J. Romeo, Esq.
Law Office of Mark J. Romeo
130 Sutter St., 7th Fl.
San Francisco, CA 94104
Irena Savvon
1260 Le Conte Ave.
Montara, CA 94037
Case: 09-03044 Doc# 17 Filed: 07/17/09 Entered: 07/17/09 16:17:24 Page 8 of 8